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All about Foreign Exchange - hidden costs and tips

The Hidden Costs of FX

Most, if not all, FX transfers incur hidden costs and if you are transferring less than £5,000, overheads do become quite significant.

Banks will charge on average £20 for sending the currency to an overseas account.

Some banks and FX companies also charge administration and commission costs, although these are often incorporated into their Dealing Rates. Commission is charged at a percentage of what you are buying – often up to two per cent of the total amount being transferred.


Be careful when accepting financial advice from the dealer

The Financial Services Authority does not regulate the Currency industry in the same way that it monitors derivatives or mortgage lending companies. Because of this, many FX companies are not legally allowed to give advice to their customers and are not in a position to predict which way the market is heading or what the conversion rates will be in the future.


Above all, shop around !

You wouldn’t buy car insurance without researching the different options first, but it’s surprising just how many people – large companies included – agree to the first foreign exchange rates they come across. This is mainly due to a lack of understanding of the terminology and the options that are available. Since registration is normally free, it makes sense to take your time and consider various options because ultimately this could save you considerable amounts of money.


Top Tips from 4x:

When purchasing foreign currency and approaching different FX providers be aware that the rates quoted will almost always be Interbank or Indication Rates. Even though it might appear to be a very attractive rate, it is not an accurate price and you might end up paying something completely different. When looking to buy foreign currencies, ensure you register with banks or FX dealing companies first – this way you can ensure the quoted price is the one you end up paying.

Different trades can work well in different circumstances. For example whilst a Spot Trade will enable a quick and efficient transfer you cannot always guarantee that the rates will not change to a more favourable one. Forward Trades are usually not as cost-effective as Spot Trades but may be beneficial if you don’t want to risk a fluctuation in the currency movement. You must however remember that currencies do fluctuate and even if you buy it at a fixed rate, you cannot guarantee that rates will not change for the better.

Always make sure you are aware of any hidden costs before going ahead with a transaction. Remember to factor these costs in to the overall decision to go with a particular FX company.

Before trading with a company you should also ensure that the FX company you select is registered with HM Revenue and Customs. With over 130 FX companies in the UK it is essential that you deal with a reputable one.


For more information visit www.4xcc.com